Custom Home Building Slows in Q1

A closer look at US Census Bureau data from its Quarterly Starts and Completions by Purpose and Design report, with additional analysis provided by the National Association of Home Builders (NAHB), shows a slowing market for custom home building after recent gains. The subsector’s greater reliance on cash buyers has not shielded it from recent market softening, NAHB said.

There were there were 34,000 total custom building starts during Q1, NAHB reported. This marks an almost 3% decline compared to 2023Q1, which runs counter to many of the gains seen in other home building subsectors. Over the last four quarters, custom housing starts totaled 177,000 homes, a more than 8% decline compared to 193,000 in the prior four quarters.

After share declines due to a rise in spec building in the wake of the pandemic, the market share for custom homes increased until 2023 and then entered a period of weakness. As measured on a one-year moving average, the market share of custom home building—in terms of total single-family starts—has fallen back to just under 18%. This is down from a prior cycle peak of 31.5% set during 2009Q2 and a 21% local peak rate at the beginning of 2023.

The NAHB notes this definition of custom home building does not include homes intended for sale, so the analysis in this post uses a narrow definition of the sector. It represents home construction undertaken on a contract basis for which the builder does not hold tax basis in the structure during construction.